Volatile FTSE fails to break higher

A hyperactive FTSE 100 ended a gruelling trading day narrowly in the red, as investors faced up to a further reduction in US stimulus and the unremitting storm clouds over emerging markets.

The index zig-zagged, before ending down 0.1% at 6,538, with a strong start for Wall Street helping market sentiment towards the end of the day in London. News that the US economy grew 3.2% in the fourth quarter of the year, from 4.1% in the previous three months, cheered investors.

At one point the Footsie shot higher, propelled by a momentary 10% gain in heavyweight HSBC(HSBA.L), thanks – traders say – to somebody’s ‘fat finger’. The shares quickly returned to their prior price, but not without one unlucky punter possibly losing some £400,000 (see this Reuters report).

The UK’s blue chip index has ended lower on seven out of the past eight days. See morning report below for more detail.

Gold fell 2.1% to $1,240 in a seemingly delayed reaction to the Fed announcement and subsequent rise in the value of the US dollar.

More FTSE losses as Fed tapers and China jitters grow (09:47)

Another $10 billion slashed off the monthly stimulus package from the US, alongside more weak data on the Chinese economy, ensured shares continued their downward slide on Thursday.

The US Federal Reserve announced the second stage in the ‘tapering’ of its monthly asset buying scheme, reducing QE to $65 billion a month and weakening the crutch global markets are so dependent on. The dollar leapt higher, while global stocks dropped in response.

The global market rout sparked by concerns over the health of emerging markets didn’t seem to worry the Fed: ‘To some economists’ surprise, there was no mention of recent turmoil in emerging markets, giving the indication that at this point the Fed does not believe U.S. economic fundamentals will be materially affected,’ commented David Lebovitz, a strategist at J.P. Morgan Asset Management.

Emerging markets investors will be watching closely, nervous that the withdrawal of support will prompt more outflows, even though the long-anticipated tapering is supposedly baked into asset prices.

The Fed’s decision – the last under Ben Bernanke, who hands over leadership of the central bank to Janet Yellen – coincided with the final reading of the HSBC/Markit manufacturing PMI for January, which fell to 49.5, down from 50.5 in December.

Few bulls

Though it may well have been data on Chinese manufacturing that originally sparked the recent emerging market sell-off, Julian Evans-Pritchard reminded worried investors that China’s manufacturing slowdown ‘is a natural result of slowing credit growth and investment spending, which in the long-run will put China's economy on a more sustainable path.’

Mark Mobius, the well-known cheerleader for emerging markets, hasn't lost his verve: 'Given the fact that emerging markets are still growing fast, given that they have low debt-to-GDP ratios, given that they have high foreign-exchange reserves, we believe that money will be flowing back in again to emerging markets,' the manager of funds including the Templeton Emerging Markets trust said in an interview with Bloomberg.

That sort of sentiment appeared to be lost on most other investors though, with no signs of the volatility of the past week abating.

Central banks in emerging markets have been taking action to attempt to cope with outflows, with India, Turkey and South Africa all announcing rate hikes this week. But the impact on financial markets has been minimal.

London’s FTSE 100 has dropped 4% over the past five days and fell another 0.3% on Thursday morning, to 6,522. Other European markets suffered similar losses, though were faring better than Asian indices had done overnight.

Providing some support though was a forecast-busting earnings update from Facebook, with the social network’s shares rising over 10% in after-hours trading.

BSkyB & Shell find investor favour; Diageo slumps

In London, BskyB(BSY.L) topped the Footise, up 3.7% to 876p despite reporting a 9.2% decline in profits for the second half of 2013, down to £554 million. But amid tough competition from BT Sport, BSkyB’s numbers beat forecasts and analysts agreed that the update was ‘strong’.

Paul Richards, an analyst at Numis summed up: ‘The group is making excellent progress on its 'broader field of opportunity' and in connected TV services. However, the Premier League auction continues to overhang the shares, particularly since the Champions' League loss.’ Richards rates BSkyB shares as ‘add’.

Shell(RDSb.L), the energy giant that recently hit the City with a profits warnings, posted a profit of $2.9 billion for the last three months of 2013, as new chief executive Ben van Beurden promised a ‘changing emphasis’ that would include more disposals.

‘Hold’ the shares for now, said Liberum analyst Andrew Whittock: ‘The shares do not look expensive but need tangible signs of delivery and clearer plans to improve financial performance.’

Shell rose 2% to £22.88

At the other end of the index, Diageo(DGE.L) fell 5.6% to £17.99 after missing City estimates with first half sales growth of 1.8%.

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